The Obama administration recently announced new rules that would expand the eligibility of salaried employees to receive overtime pay. Currently, they are not entitled to overtime pay if they receive a salary more than $23,000; the new policy doubles that figure to $47,476. As a result, this move might actually shrink the pool of potential contributors for corporate-sponsored political action committees, if employers decide to move some employees from salaried to hourly status. Salaried employees, and management personnel more broadly, can be solicited by a corporate PAC at any time; hourly employees — and nonadministrative personnel more broadly — can only be solicited twice a year.

The new overtime regulations casts attention to “traditional” multi-candidate PACs, a portion of the campaign finance world that has receded in public attention, but remains important — especially in congressional elections (though not in presidential races). Unlike super PACs, traditional PACs can make direct contributions to candidates (limited to $5,000 per candidate per campaign), as well as independent expenditures. As of 2016, PACs can only accept donations from individuals of up to $5,000.

In the 1940s, labor unions formed the first political action committees, after legislation forbade them to donate member dues directly to candidates and parties. PACs allowed unions to solicit specially designated funds from their members, and then pass those onto candidates. For a couple of decades, organized labor dominated PAC giving, helping unions increase their leverage over the Democratic Party. While corporations have been barred from giving to candidates and parties since 1907, they had many other means of funding campaigns. They could compensate their executives for their personal contributions, or encourage them to volunteer on company time, which are both forbidden. But in the era before the creation of the Federal Election Commission, these restrictions were rarely enforced.

PACs had always been on unclear legal ground, since they had never been specifically authorized by an act of Congress; a legal challenge to a PAC sponsored by a local outfit of the Pipefitters Union sparked concern. While the union eventually won the case, organized labor successfully pushed for explicit legal support for PACs in the 1971 Federal Election Campaign Act and its 1974 amendments. The same laws made it more difficult for corporations to evade campaign finance regulation. Instead, they began to sponsor political action committees. This shift was aided by a 1975 advisory opinion by the Federal Election Commission that declared sponsoring organizations could pay for the overhead expenses of PACs — including staff, fundraising and office space. Corporate PACs grew rapidly in the late 1970s and early 1980s, before their increase leveled off. Their giving usually favors incumbents of both parties, particularly those in powerful positions, but leans Republican.1 Some industries, such as energy, are much more heavily Republican (and have become more so over time), particularly since there are strong partisan divisions on the issues important to them.2

In the 2013-14 cycle, the Federal Election Commission reported 1,804 corporate political action committees. Corporate PACs received $384 million in donations, and spent $371 million in disbursements. They remain the single most important category of traditional PACs. The largest corporate PACs (measured by amounts of contributions to candidates) were sponsored by Honeywell, Lockheed Martin, AT&T, Blue Cross/Blue Shield, Northrop Grumman, Boeing, Comcast and American Crystal Sugar. According to the Center for Responsive Politics, corporate PACs provided about 40 percent of PAC funds that went to congressional candidates and about 11 percent of all funds raised by congressional candidates. (PACs generally are more important in fundraising for the House of Representatives than for the Senate).

Connected PACs — those that have a formal affiliation with an existing organization, such as a corporation, labor union or a trade association — can generally only raise money from their “restricted class.” (Connected PACs are also called “separate segregated funds”.)

For corporations, that “restricted class” includes:

Executive and administrative personnel, including those employees who are paid on a salary basis.

Professionals, such as lawyers, physicians, nurses and engineers. (But not those who are represented by a labor union).

Stockholders of the corporations.

Families of executive and administrative personnel of stockholders.

Some consultants and commissioned employees, if they have managerial responsibilities.

Some members of a board of directors.

Some executive and administrative personnel of firms with close ties to the sponsoring corporations.

Corporations can solicit “nonmanagerial” personnel and their families only twice a year. If the new overtime regulations lead some corporations to decide to move certain employees from salaried to hourly status, that would reduce their ability to solicit PAC funds from those workers. Given that the employees affected by the rules are relatively low income, they probably do not donate a large portion of corporate PAC funds, and so the rule change will probably have a limited impact. But it does shed light on an important area of campaign finance that has attracted little public attention in recent years.

2 David Karol. 2015. “Party Activists, Interest Groups, and Polarization in American Politics.” In James A. Thurber and Antoine Yoshinaka, eds. American Gridlock: The Sources, Character, and Impact of Political Polarization. Cambridge University Press: New York. (Back to top)